The shipping industry is influenced by many factors such as supply and demand dynamics, domestic and international policies, and environmental forces. Shipping rates are constantly changing to meet market demands. Since 2008, the industry has seen some drastic shifts. For example, oil prices increased more than 300% from just 2008 to 2012. Without making the proper capacity cuts or rate adjustments during this period, steamship lines lost hundreds of millions of dollars due to a crowded market. In 2017, we experienced record freight rates and tightened capacities. Fewer drivers on the road to haul the increase in freight volume, combined with two major hurricanes further displacing resources, impacted the ability to secure trucks. As demand continues to increase and resources to satisfy those demands decrease, we will be seeing changes in 2018 of a somewhat different nature.
The most recent ELD (Electronic Logging Devices) regulations have put major strains on the market. The new laws were implemented with the intention of creating safer roads by using an automated tracking system to monitor truck operation. While ELDs may increate compliance with the legally mandated maximum 11 hours of driving daily, it is also creating a shortage of drivers. According to the American Trucking Association, the U.S. is short about 30,000 truck drivers as a result of the struggle for compliance to the new regulations. Another reason for the shortage is that drivers feel the regulations to be a violation of privacy as they see their truck-cabs as a home-away-from-home. Lastly, and possibly the most significant, is the aging work force, with the average truck driver in the U.S. being 55 years old. Driver shortage issues will continue if retiring drivers are not being replaced by new recruits.
With fewer drivers on the road, we can expect certain fees and rates to rise. The first being detention fees, as the delivering “free time” is decreasing to one-hour from the previous two-hour standard. Meaning that the current market is moving towards one hour of loading/unloading time. Other fees we may see increase are spot rates, which are onsite quotes for freight that needs to be transported. As capacity remains tight we can expect increased truck rates and more shippers transitioning from truck to intermodal or rail transport. Here are a few ways to avoid additional detention charges:
These are the more short-term changes we can expect, but starting in 2018 and a few years out, we will see new technologies impact the industry in a significant way. For example, Uber Freight is an app that launched Spring 2017 which operates like Uber’s prominent ride-sharing app. Independent contractors can now use excess-capacity of their fleet to schedule and fulfill one-off order requests. This is not the only app in development. Amazon and Convoy also have apps that will look to enable on-demand freight. The concept will be to match trucking companies with shippers in efficient ways to reduce the estimated 40% of miles truck drivers travel with no cargo. Another case is the autonomous vehicle – many large asset companies have already showed interest in Tesla’s electric semi-truck which can travel 500 miles on one charge. Without having to pay for diesel or maintenance on a combustion engine, we can certainly understand the appeal.
We can speculate how these trends in the market and new innovations will affect each other. Maybe these new technologies are being fueled by large asset companies that don’t want their shareholders to think they are ignorant to the industry trends. Maybe this move in the domestic trucking industry will remedy the driver shortage issue. What we must make sure of is that we remain flexible in this new shipping environment. Shippers will need to be more adaptable in less-than-ideal-situations. Carriers will be more selective of the business they choose to handle.